German consumer law imposes new obligations for businesses offering subscriptions
The “subscription economy” has grown five to eight times faster than traditional businesses over the last decade, according to a report by Zuora, a subscription management platform. With just one click, consumers can enter into subscriptions involving a range of goods and services, from utilities and beauty products to streaming platforms. Given the model’s growth, it is no surprise that in Europe, the subscriptions market has never been bigger, with European households report spending a monthly average of €130 on subscriptions.
However, as subscription options exploded with the market’s growth, so did concerns about consumers inadvertently exposing themselves to ”subscription traps”. Subscription traps include situations where consumers are misled into signing up for a subscription or where they face challenges in exiting a subscription. In all likelihood, many consumers have found it hard to cancel a subscription after the expiration of the trial period or ended up extending the subscription for the same reason.
The German Government committed to tackling these issues, and as of July 1, 2022, businesses that allow German customers to sign up for online subscriptions will face new obligations under the new “Fair Consumer Contracts Act” (Gesetz für faire Verbraucherverträge). The new Fair Consumer Contracts Act amended certain provisions of the German Civil Code (BGB), and one of the main changes involves simplifying the cancellation of subscriptions to ensure it is as easy to cancel as it is to sign up.
Termination should be just two clicks away:
As a first step, all providers that offer subscriptions to German consumers are now asked to implement specific features to facilitate the cancellation of subscriptions. In this regard, companies will need take steps before July to ensure that they include both a “termination button” and a “confirmation page” on their websites, as follows:
- first, businesses will need to place a termination button on their websites, with the words such as “cancel your contract here” or “cancel your subscription here” or any other appropriate and unambiguous wording. By clicking on that button, the consumer should be automatically redirected to a confirmation page where they can request the termination of the subscription.
- on the confirmation page, consumers will be prompted to fill out a termination or cancellation form. The form will ask the consumer basic questions, such as their personal details (e.g., name, username or contract number), an email address to receive confirmation of the request, the termination date (i.e., the date at which the termination is intended to take place), the nature of the termination, and if applicable, the ground of termination. Once completed, the consumer should be able to submit the form by clicking on a button with the words such as “confirm cancellation” or “cancel now”.
Both the “termination button” and the “confirmation page” need to be permanently available and easily accessible to all users. The cancellation button needs to be flagged from the outset to the consumer, preferably on the website homepage or the subscription page. Likewise, a business cannot ask consumers to log in, follow repeated offers or “are you sure?” prompts to conclude such cancellation. In short, the process should be designed in such a way to enable consumers to terminate contracts in a few clicks.
What happens after the cancellation request?
Once the consumer has filed out the cancellation or termination form, businesses will need to immediately send a confirmation to the email address provided by the consumer, summarising the request, the date and time of receipt of the form, the date at which the subscription will terminate, and any other relevant information.
The online form will be deemed a valid cancellation and should not depend on additional confirmation steps if the consumer submitted sufficient and accurate data. In other words, once the consumer sends the online form with the correct information, the termination will take place. If the consumer entered incorrect data (e.g. the number provided is not linked to an active subscription), the business may request additional information, which can delay the cancellation.
Does it apply to all type of subscriptions?
The “two-click cancellation” will not apply to contracts involving financial services or where termination requires a specific form by law. Generally, the latter are tied to high-impact transactions under German law. Also, note that the rules apply to German consumers only, meaning that businesses that do not offer subscriptions in Germany will not be asked to make the changes.
What action steps should businesses take?
First, businesses must assess whether the new legislation applies to them. If so, they should implement both the termination button and the confirmation page in such a way that complies with all the legal requirements. This should be done before the deadline set out by Act, that is, July 1, 2022.
What happens if businesses do not comply with the new rules?
If a business does not comply with the new provisions, consumers can terminate the subscription at any time, without observance of a notice period – and therefore, with immediate effect.
How can Logan & Partners help?
Compliance with the new legislation requires a detailed assessment of the scope of new legislation, and an analysis of the measures put in place by the business. Our e-commerce team is available to assist with you with this and other matters.